BESS retrofit projects – as easy as plug and play?
Battery energy storage systems (BESS), when co-located with a solar or wind farm, provide a more reliable generation source by charging during periods of high irradiance or high wind and discharging to meet demand during periods of low irradiance or low wind.
Given this, we are seeing an increasing number of new solar and wind projects incorporate a BESS component. Also, many owners of existing wind and solar projects are seeking to ‘retrofit’ their projects with a BESS.
While the technical challenges associated with a BESS retrofit project are generally not considered to be materially more problematic than installing a BESS at the ‘greenfield’ stage, there are still a number of issues that an owner of an existing solar or wind farm will need to carefully consider before embarking on a BESS retrofit project.
Structuring the retrofit project as a single project with the existing solar/wind assets will likely be the simplest approach. However, if the owner wishes to obtain separate financing for the retrofit project, or maintain the flexibility to divest the solar/wind and BESS separately in the future, they should consider establishing the retrofit project as a separate project (i.e. held by a separate project entity to the solar/wind assets).
Separate projects will of course bring additional complexity though. Among other things, arrangements will need to be put in place for the sharing of common infrastructure and the allocation of liabilities and responsibilities under existing connection arrangements and other third party agreements such as leases and land access arrangements.
Insurance and financing arrangements
If the retrofit project is aggregated as a single project with the existing solar/wind assets, insurance and financing arrangements will need to be reviewed. While co-location of solar/wind and BESS is becoming more commonplace, there are unique risks associated with BESS projects (including in relation to ‘thermal runaway’ and fire) which will be considered by underwriters and lenders. Project owners should carefully consider the impact of the retrofit project on existing insurance and financing arrangements, including in the context of structuring, discussed above.
If a power purchase agreement (PPA) is in place for the existing solar/wind assets, amendments may be required to ensure the project owner is not penalised for outages associated with the commissioning of the BESS. Furthermore, if the PPA provides for exclusivity of offtake from a specified metering point, generation from the BESS will either need to be offered under the PPA or carved-out from the PPA by agreement with the offtaker (i.e. if the owner wishes to market the BESS generation separately).
Interface risks associated with the installation of BESS at an existing solar or wind farm are generally low, given there is usually enough space on site to sufficiently separate the BESS and other existing infrastructure. While there will still be certain direct interfaces between the BESS and existing infrastructure (e.g. the control centre), the risks associated with these interfaces are generally well understood.
That said, from a performance perspective, it will be important for the project owner to ensure the solar/wind and BESS operate as an integrated system and that one system does not adversely impact the performance of the other. We’ve seen, particularly where a BESS is retrofitted to a relatively new solar/wind farm (or one still under construction), that project owners often seek to contract the delivery of the BESS retrofit with the solar/wind farm contractor so that, as far as possible, performance risks are ‘wrapped’ by a single contractor. There will be limits to this however, as the solar/wind farm contractor will be keen to ensure that it is not effectively re-warranting under the BESS contract infrastructure that has already been delivered.
The regulatory challenges associated with achieving timely connection to the grid of inverter-reliant generation technologies such as solar and wind have been widely publicised, and BESS projects are no exception. The good news is that there are concerted efforts to address this. For example, the Australian Energy Market Commission is currently seeking feedback on the proposed National Electricity Amendments (Efficient Reactive Current Access Standards for Inverter-Based Resources) Rule 2023 which aims to simplify the connection requirements for inverter-reliant technologies and provide more certainty to project proponents. While these efforts bode well for the future, the challenges associated with connecting BESS projects to the grid will remain at least in the short-term.
State-specific development and environmental approvals
The unique features of a BESS project (including the risk of thermal runaway and fires discussed above) mean that project owners may be faced with additional compliance requirements not previously encountered on the existing solar or wind project.
The impact of the retrofit project on any accreditation of the existing solar/wind project under the Small-scale Renewable Energy Scheme or the Large-scale Renewable Energy Target will need to be carefully considered to ensure that the accreditation (and the project owner’s ability to monetise certificates) is not unintentionally compromised.
It goes without saying that there are a unique set of technical considerations that will need to be navigated to develop and operate a BESS retrofit project. While not a new technology, BESS is not as mature as solar and wind technologies. As such, project owners will need to ensure that they properly understand the technical risks associated with BESS projects and that these risks have been considered in the financial modelling for the project.
Where to from here?
BESS is critical in mitigating the inherently intermittent nature of wind and solar energy generation. As the industry gains greater experience with retrofit projects and the regulatory challenges associated with BESS (particularly in relation to connection) are addressed, we will see a significant increase in the augmentation of existing solar and wind farms by the introduction of BESS in the future.
While the retrofit of a solar or wind farm with BESS may not be as simple as ‘plug and play’, the challenges associated with a retrofit project are certainly not insurmountable. Project owners should carefully consider our recommendations above to ensure that these challenges are assessed thoroughly before embarking on a retrofit project.
For more information on this topic, or to explore other articles from our 2023 edition of Emerging Issues for the Australian Energy and Resources Industry, click here.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.